Fiscal cliff deal may slow economy

Updated Jan. 1, 2013 at 11:16 PM
| License Photo

WASHINGTON, Jan. 1 (UPI) -- Ending the payroll tax break, effectively cutting take-home pay for all wage earners, is likely to slow the U.S. economy in 2013, economists say.

J.P. Morgan Chase estimated that ending the cut of 2 percentage points that has reduced the payroll tax to 4.2 percent for the past two years would remove a total of $125 billion in income from paychecks a year, The Wall Street Journal reported. Several economists told the newspaper that would slow growth by half a percentage point in an economy now growing by only 2 percent annually.

Lewis Alexander, a Nomura economist, said that passing a deal and averting the fiscal cliff would give the economy only a short-term boost.

"We continue to anticipate a significant economic slowdown at the start of the year in response to fiscal drag and a contentious fiscal debate," he said.

The deal would end uncertainty about significant increases in taxes on dividends for middle-class investors. But there are other sources of uncertainty, including another round of negotiations on the federal debt limit.

Related UPI Stories
Latest Headlines
Trending Stories
American Apparel files for Chapter 11 bankruptcy
Womb transplants begin in U.K. after Sweden's success
Gay Vatican priest comes out day before Pope Francis begins synod on family issues
Scientists find roadmap that may lead to 'exercise pill'
Nobel Prize in medicine awarded to parasitic disease scientists